News: Brent still holding most of recent gains

Brent crude gained 2.5% on Thursday to retain most of the recent gains, despite broad sceptics that oil prices will hold above the lows.

In London trading Brent futures were changing hands just above US$55 per barrel, while West Texas Intermediary was up 2% at US$49.50.

A four day rally came to an end on Wednesday after American crude inventory figures added a dose of reality to hopes that the oil market had turned a corner.

Stats from the US Department of Energy revealed that the crude stockpile had increased from the new record high set last week, with the surplus increasing by a further 6.3mln barrels to 413mln barrels.

This is the biggest crude surplus in the United States since records these inventory records began in 1982.

February’s early rally comes amid signals that the oil price collapse has forced tough decisions for producers, and that the fundamentals for a recovery were falling into place.

Stats last week showed the biggest ever weekly drop in the industry’s active rig count – with nearly 100 drilling units put on hold. Similarly, more white flags were waved as Shell, BP and BG all made big reductions to capital investment plans.

Although there has been no joined together OPEC-style talk of curtailing western production, the sum total of reporting season points to an evitable slowing of production growth.

Deutsche Bank today estimated capital spending will be reduced by 22% across the sector this year.

The German bank added that US-listed mid-caps are cutting back most, with budgets slashed by around 30%. The ‘majors’ have cut capital budgets by around 14% while for national oil companies (NOC) it is about 23%.

“If achieved a 22% reduction in spending would be twice as sharp as the 2009 downturn and the sharpest year-on-year cut since at least the 1980s,” Deutsche said in a note.

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